Europe's Proposed Russian Sanctions Leaked: Full Report

It appears the European leaders, rather than actually unleash sanctions (as the US has dictated asked), has decided to 'warn' of possible sanctions with a 10-page memo of options available to them. As The FT reports, the memo (full memo below) prepared by the European Commission and distributed to national capitals, includes a proposal to ban all Europeans from purchasing any new debt or stock issued by Russia’s largest banks and also proposes barring the Russian banks from listing new issues on European exchanges, preventing them from using London or other EU stock markets to raise funds from non-Europeans. While Germany (and many other EU nations remain nervous of the blowback) the 'options memo' is extensive and would likely have significant impact on the Russian economy.

EU diplomats will weigh sweeping Russian sanctions on Thursday that include a proposal to ban all Europeans from purchasing any new debt or stock issued by Russia’s largest banks, according to a proposal seen by the Financial Times.

The sanctions measure, contained in a 10-page options memo prepared by the European Commission and distributed to national capitals, also proposes barring the Russian banks from listing new issues on European exchanges, preventing them from using London or other EU stock markets to raise funds from non-Europeans.

...far more extensive than sanctions imposed by the US this month which only targeted two Russian banks, Gazprombank and VEB, since the EU proposal would hit all banks with more than 50 per cent public ownership.

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In addition to the capital markets ban, one of the most onerous measures included in the document is a proposed restriction on exporting “sensitive technologies”, which would include components needed by Russia’s critical energy sector.

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Other options included in the paper are an arms embargo, though the document says the EU exports only about €300m in weapons to Russia and it would largely affect the €3.2bn in armaments imported from Russia by Europe. Many former Warsaw Pact countries still rely on Russian military equipment.

Implications...

“Restricting access to capital markets for Russian state-owned financial institutions would increase their cost of raising funds and constrain their ability to finance the Russian economy, unless the Russian public authorities provide them with substitute financing,” the document reads.

“It would also foster a climate of market uncertainty that is likely to affect the business environment in Russia and accelerate capital outflows. “

“[It] would push companies to seek state financing as a stopgap, further straining the government’s budget,” the document states.

Will it happen?

Although Thursday’s meeting of EU ambassadors will be the first time diplomats have formally discussed such broad-based sanctions against Russian economic sectors over Moscow’s interference in the Ukraine crisis, the capital markets ban remains unlikely.

The measure would have to be agreed unanimously by all 28 EU members, and several countries have repeatedly shown a reluctance to agree such sector-wide sanctions.

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Is it any wonder European leaders are all talk since the potential for blow back is so much larger compared to Washington...